Poison Pill: How to Destroy GM - The Big Picture

Sergio Marchionne’s audacious bid to merge Fiat Chrysler Automotive with General Motors is precisely the multi-billion-dollar power play Wall Street loves. This is swashbuckling, freewheeling American capitalism at its best, and there’s a lot of money to be made by the bankers and lawyers and shareholders who are in on the deal. There’s just one small problem: The merger would be a disaster for GM.

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Editor's Note: This week, Marchionne said he has no plans to make another offer to GM.

Marchionne’s 2009 merger of bankrupt Chrysler and struggling Fiat made classic business school sense. Chrysler built large and midsize cars, trucks, and SUVs, and had a strong dealer presence in North America, while Fiat had expertise in small cars, diesel engines, and dealers in Europe and South America. The synergies looked real, but behind the dazzling financial footwork was a business saddled with too many uncompetitive vehicle platforms and too many struggling brands.

For all its vaunted expertise in small cars, neither Fiat’s Fiesta-size Punto nor Focus-size Bravo models are among the top 10 sellers in Europe’s most critical market segments. Astonishingly, the Fiat brand’s biggest market is not even Italy, but Brazil, which accounts for 45 percent of total sales, and the Fiats sold there are mostly cheap, low-tech cars that consumers in developed markets won’t consider.

Nightmarish operational complexities and too many brands competing for the same customers—that sounds a lot like the old GM.

Collateral damage: Chrysler. It’s now pretty much dead outside North America, surviving only in the U.K. and a handful of other countries. Here in the U.S. Chrysler’s lineup now consists of just three vehicles—200, 300, and Town & Country—with the brand accounting for just 15 percent of FCA’s sales. Dodge is in much better shape, but half its car sales last year came from two models built on aging hand-me-down Mercedes-Benz platforms: Charger and Challenger.

The critical point is that outside Brazil, and apart from the Fiat 500 in Europe and minivans in the U.S., FCA vehicles don’t lead their segments. In the U.S. the Ram pickup is outsold by Ford F-150 and Chevy Silverado; the Challenger by Camaro and Mustang; Jeep Patriot, Cherokee, and Grand Cherokee by Honda CR-V, Chevy Equinox, and Ford Explorer, respectively. Even Chevy’s little Spark outsells the Fiat 500 here.

Ferrari and Jeep, Marchionne’s most valuable bargaining chips, are iconic and successful brands. They alone would make nice additions to the existing GM portfolio, but they’re simply not worth the aggravation of taking on the rest of FCA.

For all Sergio Marchionne’s talk of the need for further auto industry consolidation to reduce costs and improve efficiency, the reality is there’s nothing an FCA/GM merger would achieve beyond creating a company with nightmarish operational complexities and too many brands competing for the same customers. Wait … That sounds a lot like the old GM. And we all know how that ended.